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Coworking and Retail Real Estate – Are They Really a Good Match?

As large retailers consolidate and seek new opportunities for their struggling stores, many commercial property owners are feeling the effect in the form of lower demand. At the same time, coworking is a growing industry. Can this new approach to offices in the gig economy make up for the empty retail space in a profitable way?

According to a recent study from JLL, the answer to this question appears to be a resounding “yes.”

The report reveals that“coworking presents a viable solution for vacant retail space by decreasing vacancy and driving additional foot traffic with a guaranteed daytime population. Added foot traffic may also help revitalize the center and attract new retail tenants.”

More than half of the coworking spaces investigated in the report incorporated retail selling space within their walls. “This coworking and retail mix is a burgeoning trend of multifunctional mixed-use spaces. This opens up opportunities for local, niche or startup concepts that do not have the capital for their own location to flourish as part of a shared retail space,” according to the report.

The report is the first study of its kind to investigate the phenomenon of coworking in retail properties. It identifies 75 locations in the U.S. with existing and proposed coworking spaces in retail spaces, which equates to more than one million square feet of retail space.

JLL predicts that the number of coworking spaces in retail properties will grow at a rate of 25% annually and reach approximately 3.4 million square feet by 2023.

The report reveals that almost three fifths of retail-based coworking spaces are located in malls (21.3%), street-front retail (20.0%) and mixed-use developments (17.3%). These retail coworking spaces target mid to top-tier retail properties in areas with above-average household incomes.

The average household income within a 3-mile radius of coworking retail spaces is approximately $100,000, according to the report. More than half are also located in the suburbs and are within walking distance many or most of their patrons.

The suburbs can expect an increasing number of such spaces going forward, as the report states that “more millennials are starting families and buying homes, many of them in the ‘burbs.”

“Since millennials play a major role in driving the growth of coworking, the fact that they are increasingly moving out of the urban core into suburbia means that more coworking spaces will open in these neighborhoods to serve them.”

Introducing the four types of retail coworking space

The report identified four emerging forms of coworking space, where each is tailored to the different requirements of its target members. These are:

Retail Launchpads

An incubator with a demo space – $404/person/month average fee

These spaces specifically target retail startups, with incubation and demo spaces where new businesses also get access to their target demographic – affluent shoppers. These spaces are concentrated in areas with an average household income of $130,000.

The report reveals: “This model is unique because of its ability to infuse the shopping center with new life by boosting the coolness quotient: makers, innovators and high-tech brands interact with consumers and offer interactive experiences that draw crowds with spending power.”

“Retail Launchpads revitalize centers by constantly evolving with novel, unique offerings and introducing smaller, innovative brands to the market creating a new diverse marketplace,” it adds.

Telework Hubs

Comprehensive telecommuting hubs – $359/person/month average fee

These are the most common space type, representing more than three-quarters of all the report’s case studies. Focused on telecommuting, these spaces target a wide cross-section of communities, including corporate office workers, entrepreneurs and freelancers.

The report identifies the 700+ retail spaces left empty from the collapse of Toys “R” Us as a good match for Telework Hubs. “Not only are close to half of Telework Hubs located in mid-level retail properties, but larger locations in power centers average over 31,000 square feet—just around the footprint of a typical Toys “R” Us store,” according to the report.

Business Boosters

Growth vehicle for entrepreneurs – $255/person/month average fee

Business Boosters have a laser focus on corporate growth and provide members with a range of capital, consulting and business development services as well as training and mentors.

These spaces tend to be on the smaller side, roughly 10,000 square feet, and are found in both urban and suburban areas. 70% are in traditional street front retail buildings, community, or neighborhood centers in mid-rated properties. With a combination of high-income members, with average incomes of $105,916, and lower than average monthly fees, Business Boosters are a good option to backfill vacant space in mid-level neighborhood centers, according to the report.

Creative Coalitions

Artists/Maker workspace – $192/person/month average fee

These community-focused spaces target artists, makers and other creatives. They house specialist equipment like 3D printers, dark rooms and welders to meet the needs of this artistic demographic.

Three quarters of Creative Coalition spaces are located in urban areas that are within a walkable distance for their community. The report states: “Creative Coalitions are advantageous for retail as they draw Millennials, who are becoming the most powerful consumers. These spaces also combine community events and retail within their space, cultivating a destination that draws additional patrons and raises the profile of the property by offering new and enjoyable experiences.”

In conclusion

Retail coworking spaces are bringing innovation to the world’s traditional retail spaces at a time of economic disruption, with many stores now lying empty. 

The report ends on an optimistic note for the future of retail coworking spaces: “Retail-based coworking spaces are successfully integrating work and play, bringing together makers, workers, and consumers and breathing new life and energy into retail locations. We expect further growth in these hybrid spaces where the synergy between coworking and retail is maximized.”

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